I have such an intense enthusiasm for Apple Inc. (NasdaqGS: AAPL), that my collection of the company’s products sounds a lot like the lyrics of a famous Christmas song: Five iPhones, four wireless routers, three MacBooks, two Apple TVs and one pair of iPads.
And while my love for the company’s products is great, and would certainly be a factor, I can assure you that my analysis of the profit potential posed by Apple’s stock will be like any other recommendation I make – completely objective.
But with a polarizing “cult” stock like Apple, that’s clearly not a claim that every analyst can make. You see, when I compare the current bull and bear stock-price predictions for Apple, I feel as if I’m reading about two completely different companies.
With Apple, it seems, there’s no middle ground.
This intense disagreement is actually one of the factors that have been holding down Apple’s share price. Coming, as it does, on such a high-profile stock, the tug-of-war between the opposing camps plays out in the headlines each day. And it’s causing so much confusion – and outright frustration – that most potential Apple investors are sticking to the sidelines, and are choosing to ignore the stock altogether.
That’s unfortunate … because this stock is actually one of the most intriguing profit plays that I see right now – a big-name brand in turnaround mode, and a tech stock that poses less-than-average risk.
And as profit opportunities go, this is a big one.
I see two major catalysts here that are perfectly positioned to drive the stock higher.
Indeed, this has the double-your-money profit potential that we target for you here at the Strategic Tech Investor.
And when this stock rallies, the folks who listened to the bears will realize they’d been suckered.
A Tough Assignment
Sometimes it really stinks to be the guy who replaces a legend.
Jeffrey Immelt had to do it when he succeeded Jack Welch at General Electric. Heartley William “Hunk” Anderson had to do it when he followed Knute Rockne as head coach at Notre Dame. And current Apple CEO Tim Cook had to do it by taking over for the late Steve Jobs, the Apple co-founder who later came back and turned the struggling firm into a consumer-gadgets powerhouse.
Under Cook, Apple has seen its stock price plummet from the all-time record closing high of $705 a share set back in September 2012. In recent months, as the company continued to struggle, the buzz was that Cook was in well over his head.
I don’t agree.
I keep a sharp eye on Apple and I think Cook is doing about as good a job as anyone could be expected to do after succeeding a legend like Jobs.
Jobs knew how to create products that could get hard-bitten tech veterans like me emotionally involved with machines in a way that few business leaders ever have.
Candidly speaking, no CEO I can think of could truly replace Jobs. Maybe Elon Musk, the role model for the “Ironman” movie franchise. Though brilliant, Musk is not an iDevice expert and he’s a little tied up right now running Tesla Motors Inc. (NasdaqGS: TSL).
And now there are signs that Cook is winning Wall Street over. At a recent price of $505, Apple’s shares have already recovered 29% of its value from the closing low of $390.53 reached back on April 19.
The reason why I wanted to talk with you about Cook’s tenure is this subject is an aspect of the five rules I’ve created to generate tech-investing wealth.
Rule No. 1 says “great companies have great operations.” And great operations almost always start with leadership. Having analyzed Apple’s performance during Cook’s tenure, I believe the firm meets this rule’s mandate.
Cook is also focused on improving value for the shareholder. Besides achieving high profit margins, he has set aside $100 billion for dividends and stock buybacks.
A Powerful Start
At the end of the day, a corporate CEO is no different than a baseball team manager or an NFL head coach.
They get judged on results.
And lately Cook’s been getting some pretty good ones.
Take the two new versions of the iPhone that the Silicon Valley pioneer recently released.
Apple sold a record-breaking 9 million new iPhones during their recent introductory weekend. Those sales figures swamped the forecasts of industry analysts who had predicted unit sales of 5 million to 7 million.
The market research firm Localytics estimated that more than 75% of the launch sales were for the follow-on iPhone 5S model, with the remainder going to the much-maligned, plastic-cased 5C.
The 5C did pretty well in the U.S. market following its rollout. And those decent results flummoxed Apple’s skeptics. You see, the 5C was supposed to be a “cheap” version of the regular iPhone, which has an aluminum case.
But now Apple has already found that its customers are flocking to the higher-priced (and higher-profit-margin) iPhone 5S, so it’s already cutting back production orders for the plastic-housed phone.
But the 5C served its purpose: It allowed Apple to ramp up enough supply to avoid any shortages that would have robbed the company of sales and sparked customer and investor angst at a key juncture in the firm’s post-Jobs period.
And the migration to the costlier phone helped preserve Apple’s profit margins – enough so, in fact, that heartened Wall Streeters sparked a surge in the company’s share price.
The iPhone, in other words, has recovered some of its “iconic” status.
And it looks like the company has, too.
A Billion Here, a Billion There
Although the successful iPhone launch has added some oomph to the Apple-share-price rebound, there was an earlier catalyst that first gave the stock its northward launch.
I’m talking about the “Icahn Hug.”
In mid-August, heavyweight investor Carl Icahn revealed in a Twitter “tweet” that he’d taken a $1 billion stake in Apple and would be pushing Cook to further improve the stock price.
The two men recently had a dinner meeting at Icahn’s New York apartment that last lasted four hours. Icahn says he was blunt in giving his reasons why he wants Cook to commit to buying back another $150 billion worth of Apple stock.
A former corporate raider and “green mailer,” Icahn has more recently recast himself as an “activist investor.” And while he doesn’t win every battle, when he does emerge victorious, his fellow shareholders often nominate him for sainthood.
Take the case of Netflix, Inc. (NasdaqGS: NFLX). Sensing hidden value in the online streaming service, Icahn took a stake back in September 2012 when the stock was trading at less than $60 a share.
At the time, some analysts said Icahn was crazy. Well, NFLX recently closed at about $300 a share – a gain of 400% in just over a year.
If Icahn were to work the same magic on Apple, we’d be looking at a share price of $2,460 a share.
But as you folks know, I tend to be very conservative with projections of this type. If Icahn were merely one-fourth as successful with Apple, we’d still be looking at a gain of 100% increase from here.
Poised to Double
And Icahn isn’t the only famously shrewd investor who’s convinced a rebound in Apple shares is at hand. Both George Soros and Leon Cooperman have said that they’ve moved into the stock – taking stakes of roughly the same magnitude as Icahn.
And Icahn subsequently reported that he’d further increased his stake in Apple.
But even without Icahn, Soros and Cooperman in the mix, Apple meets Rule No. 5 of my system: It has the power to double all on its own.
With a market cap of nearly $450 billion, Apple has an earnings-per-share (EPS) growth rate over the past three years of 52%, meaning profits would roughly double in about 18 months.
If the stock simply traded at its current Price/Earnings (P/E) multiple of 12, which is a 20% discount from the overall market, that alone could justify a 100% gain for the stock (getting you to $980 a share). But if the P/E matched the market’s rate of 15, the stock would trade even higher – perhaps trading as high as $1,175 a share.
Usually when I’m analyzing a stock – and forecasting a possible stock price target – I can cite one, or even two, catalysts that I believe could help drive the share price higher.
With Apple, though, there are at least three major catalysts that are poised to make this stock a big winner. They are:
- Breakout products: With the successful iPhone 5S launch in the books, the company can look forward to an expected iPad launch this month, and subsequent rollouts of its rumored iWatch and Apple TV products to create additional “buzz” around the stock.
- Activist investors: In addition to Icahn, Soros and Cooperman, mutual fund legend Bill Miller has been working to “jawbone” the stock higher. And Icahn has made it clear that he’s going to aggressively push for buybacks and other shareholder-favoring moves.
- Strong fundamentals: Although the stock is cheap on a valuation basis, the increasingly vocal support from activist investors and placating moves by the company should combine with rising profits to push this stock higher.
In our weekly talks here we’ve often talked about “special-situation” stocks that are in a unique position to deliver some potentially heady gains.
Apple is in just that spot.
It’s a classic corporate turnaround in the making. But it’s more than that: Despite what many Wall Streeters and other market mavens would have us believe, Apple’s growth days aren’t over yet.
When I say that the road to wealth is paved with tech, Apple is exactly the kind of company I have in mind.
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